Chargebacks

5 Most Common Reason Codes for Chargebacks

The 5 Most Common Root-Causes of Chargebacks_Blog Image

There are hundreds upon hundreds of reasons a customer might dispute a charge – and the extensive list of chargebacks reason codes is proof.

They may have been charged twice or over-charged, they might have received damaged goods or misrepresented services, or they could just be trying to cheat the system and get their purchase for free.

For the most part, chargebacks fall into five categories.

Friendly Fraud 

New call-to-actionFriendly fraud is a broad category that includes a number of different chargeback scenarios.  In most cases of friendly fraud, the customer is trying to cheat the system, purchasing the product or service and then filing a chargeback to obtain that purchase for free.  In other cases, customers may dispute a charge because they never received the product or service, their purchase was defective, the merchant continued to charge them after cancelation, or they never received a refund after being promised one. 

Anywhere from 60 to 90 percent of all chargebacks are instances of friendly fraud.

Affiliate Fraud 

Affiliate fraud stems from unsavory affiliate marketers and only occurs with merchants that use this type of marketing technique.  The affiliates will drum up a large volume of fraudulent transactions just to increase their income from the merchant.  Then, they’ll cash out on their dividends before the merchant has time to notice.  

Depending on how much affiliate marketing a merchant uses, affiliate fraud can account anywhere from 10 to 60 percent of all chargebacks.

Bad Customer Service

Often, just plain poor service is the reason behind chargebacks.  Customers who’ve been forced to wait on hold for long amounts time, been routed through countless call centers, had their emails and messages ignored, or encountered a rude representative along the way, may just be tempted to dispute the transaction as the merchant provided no other alternative.  

These types of chargebacks usually account from 10 to 30 percent of all chargebacks.

Issues with Fulfillment 

Fulfillment – which includes picking, packing, shipping and delivery – is another common cause of chargebacks.  Late deliveries, products damaged during shipment, non-delivery of product, and poor quality control in picking and packing can all result in an unhappy customer and a potential chargeback.  

For most merchants, these account for about 1 to 15 percent of all chargebacks.

Canceled Subscriptions

Download the eGuide, 4 Reasons to Hire a Chargeback Management CompanyFor merchants that operate on a subscription model, problems with cancelations can also lead to chargebacks.  Many times, customers are inadvertently charged after already canceling their subscription, thus forcing them to file a chargeback dispute.  Sometimes, customers may file the chargeback after they receive the products just to get them free

Know Where Your Chargebacks Come From

It’s vital to know what’s causing your chargebacks, so you can not only fight them but prevent them from the ground up as well.

Chargebacks cost merchant’s way more than just the loss in sales.  Once you add in marketing expenses, cost of customer acquisition, transaction fees, costs of goods and more, chargebacks often run merchants more than two times their initial losses.  They can also put merchant accounts in jeopardy and threaten the very payment methods you need to do business.

Identifying your chargeback reason codes, understanding them, and taking steps to remedy the root causes of your chargebacks is key to keeping your merchant accounts intact. 

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Get the guide, Chargebacks 101: Understanding Chargebacks & Their Root Causes

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